Tenable(TENB) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents Tenable Holdings, Inc.'s unaudited consolidated financial statements for Q1 2022, detailing financial position, performance, cash flows, and accounting policies Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $287,455 | $278,000 | | Short-term investments | $238,645 | $234,292 | | Accounts receivable, net | $96,381 | $136,601 | | Total current assets | $722,231 | $749,438 | | Goodwill | $280,574 | $261,614 | | Total assets | $1,237,875 | $1,248,819 | | Deferred revenue (current) | $404,786 | $407,498 | | Total current liabilities | $463,805 | $483,882 | | Term loan, net | $364,063 | $364,728 | | Total liabilities | $1,010,907 | $1,033,506 | | Total stockholders' equity | $226,968 | $215,313 | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $159,368 | $123,189 | | Cost of revenue | $34,930 | $22,073 | | Gross profit | $124,438 | $101,116 | | Sales and marketing | $81,570 | $58,635 | | Research and development | $34,290 | $26,838 | | General and administrative | $26,126 | $21,445 | | Total operating expenses | $141,986 | $106,918 | | Loss from operations | $(17,548) | $(5,802) | | Net loss | $(24,506) | $(7,748) | | Net loss per share, basic and diluted | $(0.22) | $(0.07) | Consolidated Statements of Comprehensive Loss Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(24,506) | $(7,748) | | Unrealized losses on available-for-sale securities | $(1,057) | $(2) | | Other comprehensive loss | $(1,057) | $(2) | | Comprehensive loss | $(25,563) | $(7,750) | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Balance at December 31, 2021 | Balance at March 31, 2022 | | :-------------------------------- | :--------------------------- | :------------------------ | | Common Stock (Shares) | 108,929 | 110,287 | | Common Stock (Amount) | $1,089 | $1,103 | | Additional Paid-in Capital | $869,059 | $906,263 | | Accumulated Other Comprehensive Loss | $(306) | $(1,363) | | Accumulated Deficit | $(654,529) | $(679,035) | | Total Stockholders' Equity | $215,313 | $226,968 | - Stock-based compensation contributed $25.7 million to additional paid-in capital in Q1 2022, up from $17.0 million in Q1 2021[19] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $32,862 | $38,625 | | Net cash (used in) provided by investing activities | $(33,486) | $578 | | Net cash provided by financing activities | $10,528 | $12,058 | | Net increase in cash and cash equivalents and restricted cash | $9,455 | $50,193 | | Cash and cash equivalents and restricted cash at end of period | $287,726 | $228,656 | - Net cash used in investing activities significantly increased to $(33.5) million in Q1 2022, primarily due to the Cymptom acquisition and increased purchases of short-term investments and property and equipment[22][160] Notes to Consolidated Financial Statements 1. Business and Summary of Significant Accounting Policies - Tenable Holdings, Inc. provides Cyber Exposure solutions, offering broad visibility into security issues across IT infrastructure, cloud, Active Directory, and operational technology environments[24] - The consolidated financial statements are unaudited and prepared in conformity with GAAP, consistent with the 2021 Annual Report on Form 10-K, with no material changes to significant accounting policies during the three months ended March 31, 2022[25][26][29] 2. Revenue Revenue Disaggregation (in thousands) | Revenue Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Subscription revenue | $142,687 | $107,402 | | Perpetual license and maintenance revenue | $12,873 | $12,405 | | Professional services and other revenue | $3,808 | $3,382 | | Total Revenue | $159,368 | $123,189 | - Subscription revenue increased by 33% year-over-year[143] - 92% of revenue was derived through the channel network in both Q1 2022 and Q1 2021, with one distributor accounting for 37% and 41% of revenue, respectively[32] Deferred Commissions Activity (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $99,949 | $78,876 | | Capitalization of contract acquisition costs | $10,330 | $7,224 | | Amortization of deferred contract acquisition costs | $(11,016) | $(8,800) | | Ending balance | $99,263 | $77,300 | 3. Cash Equivalents and Short-Term Investments Cash Equivalents and Short-Term Investments (in thousands) | Asset Type | Amortized Cost (Mar 31, 2022) | Estimated Fair Value (Mar 31, 2022) | Amortized Cost (Dec 31, 2021) | Estimated Fair Value (Dec 31, 2021) | | :-------------------------------- | :------------------------------ | :---------------------------------- | :------------------------------ | :---------------------------------- | | Money market funds | $156,230 | $156,230 | $178,518 | $178,518 | | Commercial paper | $111,521 | $111,224 | $134,165 | $134,118 | | Corporate bonds | $37,339 | $37,087 | $27,169 | $27,128 | | Asset backed securities | $26,358 | $26,168 | $27,464 | $27,411 | | Certificates of deposit | $20,000 | $19,963 | $10,000 | $9,992 | | Supranational bonds | $8,599 | $8,492 | $8,632 | $8,599 | | U.S. Treasury and agency obligations | $36,191 | $35,711 | $27,168 | $27,044 | | Total short-term investments | $240,008 | $238,645 | $234,598 | $234,292 | - Unrealized losses on short-term investments at March 31, 2022, totaling $(1,363) thousand, were primarily due to rising market interest rates and are not believed to represent credit losses[36] 4. Fair Value Measurements - Fair value measurements classify assets into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[39] Fair Value Measurement of Assets (in thousands) | Asset Type | Level 1 (Mar 31, 2022) | Level 2 (Mar 31, 2022) | Total (Mar 31, 2022) | | :-------------------------------- | :----------------------- | :----------------------- | :------------------- | | Money market funds | $156,230 | — | $156,230 | | Commercial paper | — | $111,224 | $111,224 | | Corporate bonds | — | $37,087 | $37,087 | | Asset backed securities | — | $26,168 | $26,168 | | Certificates of deposit | — | $19,963 | $19,963 | | Supranational bonds | — | $8,492 | $8,492 | | U.S. Treasury and agency obligations | — | $35,711 | $35,711 | | Total cash equivalents | $156,230 | — | $156,230 | | Total short-term investments | — | $238,645 | $238,645 | 5. Property and Equipment, Net Property and Equipment, Net (in thousands) | Asset Type | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Computer software and equipment | $34,120 | $29,203 | | Furniture and fixtures | $5,851 | $5,944 | | Leasehold improvements | $26,926 | $26,713 | | Right-of-use assets under finance leases | $1,343 | $1,343 | | Total | $68,240 | $63,203 | | Less: accumulated depreciation and amortization | $(28,642) | $(26,370) | | Property and equipment, net | $39,598 | $36,833 | - Depreciation and amortization related to property and equipment increased to $2.5 million in Q1 2022 from $2.2 million in Q1 2021[41] 6. Acquisition, Goodwill and Intangible Assets - In February 2022, Tenable acquired Cymptom for $23.0 million in cash, net of cash acquired, to enhance its platform with proactive attack path measurement and prioritization capabilities[42] Cymptom Acquisition Purchase Price Allocation (in thousands) | Allocation Item | Amount | | :-------------------------------- | :----- | | Intangible assets | $4,113 | | Goodwill | $18,960 | | Other liabilities, net | $(113) | | Total purchase price | $22,960 | - Goodwill increased to $280.6 million at March 31, 2022, from $261.6 million at December 31, 2021, primarily due to the Cymptom acquisition[46] - Amortization of acquired intangible assets increased significantly to $2.4 million in Q1 2022 from $0.6 million in Q1 2021[47] 7. Leases Operating Lease Information | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Weighted average remaining lease term | 9.1 years | 9.2 years | | Weighted average discount rate | 5.5% | 5.5% | Maturities of Operating Lease Liabilities at March 31, 2022 (in thousands) | Year Ending December 31, | Amount | | :-------------------------------- | :----- | | 2022 (nine months) | $4,655 | | 2023 | $8,214 | | 2024 | $8,349 | | 2025 | $8,189 | | 2026 | $7,410 | | Thereafter | $37,421 | | Total lease payments | $74,238 | | Less: Imputed interest | $(16,989) | | Total | $57,249 | 8. Debt - In July 2021, Tenable entered into a Credit Agreement consisting of a $375.0 million senior secured term loan facility (Term Loan) and a $50.0 million senior secured revolving credit facility (Revolving Credit Facility)[51][56] - The Term Loan bears interest at 2.75% over LIBOR (subject to a 0.50% floor) and is amortized at 1% per annum, with a final payment of $350.6 million due July 7, 2028[52] - At March 31, 2022, Tenable was in compliance with all covenants under the Credit Agreement, with no amounts outstanding under the Revolving Credit Facility[55] 9. Commitments and Contingencies - Tenable has a $140.6 million commitment with Amazon Web Services, Inc. for cloud services from August 2021 through July 2024, having met its commitment for the first year as of March 31, 2022[57] - As of March 31, 2022, Tenable had $5.7 million in standby letters of credit, primarily related to grant agreements and operating leases, collateralized by restricted cash[58] 10. Stock-Based Compensation Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $1,513 | $937 | | Sales and marketing | $10,065 | $6,296 | | Research and development | $6,463 | $4,156 | | General and administrative | $7,357 | $5,563 | | Total stock-based compensation expense | $25,398 | $16,952 | - Unrecognized stock-based compensation expense at March 31, 2022, totaled $311.1 million for RSUs (3.2 years remaining), $9.1 million for PSUs (3.9 years remaining), $1.0 million for stock options (0.2 years remaining), and $10.1 million for the ESPP (0.9 years remaining)[60][61][62] 11. Income Taxes - The Q1 2022 income tax provision included $1.7 million in foreign income taxes, $0.8 million current expense from Israel R&D restructuring, and $0.7 million in discrete expense items, partially offset by $0.4 million deferred tax benefits from the Alsid acquisition[67] - The Q1 2021 income tax provision included $1.1 million in foreign income taxes and $2.8 million current expense from Israel R&D restructuring, partially offset by $1.2 million discrete benefits from an India Supreme Court decision and $1.4 million other discrete benefits[68] 12. Net Loss Per Share Net Loss Per Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(24,506) | $(7,748) | | Weighted-average shares used to compute net loss per share, basic and diluted | 109,524 | 104,531 | | Net loss per share, basic and diluted | $(0.22) | $(0.07) | - Potentially dilutive securities, including 8.1 million RSUs and 6.4 million stock options at March 31, 2022, were excluded from diluted EPS calculations as they were antidilutive[69] 13. Geographic Information Revenue by Region (in thousands) | Region | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | The Americas | $99,500 | $80,595 | | Europe, Middle East and Africa | $43,139 | $29,266 | | Asia Pacific | $16,729 | $13,328 | | Total Revenue | $159,368 | $123,189 | - Customers in the United States accounted for 56% of revenue in Q1 2022 (down from 59% in Q1 2021), with international revenue increasing by 40% year-over-year[71][143] 14. Subsequent Events - In April 2022, Tenable agreed to acquire Bit Discovery, a leader in external attack surface management (EASM), for $44.5 million in cash, with the acquisition expected to close in Q2 2022[73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Tenable's financial condition and results for Q1 2022, covering business developments, performance, influencing factors, and liquidity, emphasizing its Cyber Exposure solutions and growth strategies Overview - Tenable is a leading provider of Cyber Exposure solutions, offering broad visibility into security issues across IT, cloud, DevOps, Active Directory, and Industrial IoT/OT environments[76][77] - Revenue for Q1 2022 was $159.4 million, a 29% year-over-year increase, with recurring revenue representing 95% of total revenue[81] - The company reported a net loss of $24.5 million in Q1 2022, compared to $7.7 million in Q1 2021[81] - No significant adverse impact from the COVID-19 pandemic was observed on the business as of March 31, 2022[82] Factors Affecting Our Performance - Tenable focuses on product leadership through continuous innovation in its enterprise platform offerings and Nessus products to manage and reduce Cyber Exposure[84][85] - Growth strategies include acquiring new enterprise platform customers by expanding the sales organization and leveraging channel partners, and expanding revenue from existing customers through broader coverage and upselling from Nessus Professional[86][87][88][89] - The dollar-based net expansion rate for the three months ended March 31, 2022, exceeded 110% on a last twelve months (LTM) basis[92] - The company plans to continue significant investments in sales and marketing, research and development, and potential acquisitions to drive business growth, which may increase short-term net losses[94][95] Key Operating and Financial Metrics Calculated Current Billings (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $159,368 | $123,189 | | Add: Deferred revenue (current), end of period | $404,786 | $325,113 | | Less: Deferred revenue (current), beginning of period | $(407,635) | $(328,819) | | Calculated current billings | $156,519 | $119,483 | Free Cash Flow and Unlevered Free Cash Flow (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $32,862 | $38,625 | | Purchases of property and equipment | $(4,811) | $(1,061) | | Free cash flow | $28,051 | $37,564 | | Cash paid for interest and other financing costs | $4,051 | $71 | | Unlevered free cash flow | $32,102 | $37,635 | Enterprise Platform Customer Growth | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | New enterprise platform customers added | 459 | 331 | 39% | Customers with $100,000+ Annual Contract Value | Metric | At March 31, 2022 | At March 31, 2021 | Change (%) | | :-------------------------------- | :---------------- | :---------------- | :--------- | | Number of customers | 1,112 | 866 | 28% | Non-GAAP Income from Operations and Operating Margin (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Loss from operations (GAAP) | $(17,548) | $(5,802) | | Stock-based compensation | $25,398 | $16,952 | | Acquisition-related expenses | $1,341 | $2,158 | | Costs related to intra-entity asset transfers | $838 | — | | Amortization of acquired intangible assets | $2,427 | $579 | | Non-GAAP income from operations | $12,456 | $13,887 | | Operating margin (GAAP) | (11)% | (5)% | | Non-GAAP operating margin | 8% | 11% | Non-GAAP Net Income and Earnings Per Share (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss (GAAP) | $(24,506) | $(7,748) | | Stock-based compensation | $25,398 | $16,952 | | Tax impact of stock-based compensation | $1,066 | $(4) | | Acquisition-related expenses | $1,341 | $2,158 | | Costs related to intra-entity asset transfers | $838 | — | | Amortization of acquired intangible assets | $2,427 | $579 | | Tax impact of acquisitions | $(442) | — | | Tax impact of intra-entity asset transfers | $843 | $2,808 | | Non-GAAP net income | $6,965 | $14,745 | | Net loss per share, diluted (GAAP) | $(0.22) | $(0.07) | | Non-GAAP earnings per share, diluted | $0.06 | $0.13 | Components of Our Results of Operations - Revenue is primarily generated from subscription arrangements (recognized ratably), perpetual licenses with maintenance (combined performance obligation, recognized over initial term and expected renewal period), and professional services (recognized as performed)[119][120][121][122] - Cost of revenue includes personnel costs for technical support, cloud infrastructure costs, professional services, depreciation, and amortization of acquired technology[124] - Operating expenses consist of sales and marketing (largest category, expected to increase in absolute dollars), research and development (expected to increase annually), and general and administrative expenses (expected to increase annually due to public company costs)[128][130][131][132][133][134] - Interest expense, net, primarily relates to the senior secured term loan facility, while other expense, net, mainly consists of foreign currency remeasurement and transaction gains/losses[135][136][137] - Provision for income taxes includes foreign jurisdiction taxes, R&D restructuring expenses, and discrete expense items, with a full valuation allowance maintained for deferred tax assets[138][139][140] Results of Operations This section compares Tenable's financial results for Q1 2022 and Q1 2021, detailing revenue, cost of revenue, operating expenses, and other financial items Revenue Growth (in thousands) | Revenue Type | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Subscription revenue | $142,687 | $107,402 | $35,285 | 33% | | Perpetual license and maintenance revenue | $12,873 | $12,405 | $468 | 4% | | Professional services and other revenue | $3,808 | $3,382 | $426 | 13% | | Total Revenue | $159,368 | $123,189 | $36,179 | 29% | - U.S. revenue increased by 22%, while international revenue increased by 40% year-over-year. Approximately $1.4 million of Q1 2022 revenue was due to early termination of contracts in Russia and Belarus[143] - Cost of revenue increased by $12.9 million (58%), primarily due to a $7.9 million increase in third-party cloud infrastructure costs and a $1.8 million increase in amortization of intangible assets[144][146] - Gross margin decreased from 82% in Q1 2021 to 78% in Q1 2022[144] - Sales and marketing expense increased by $22.9 million (39%), driven by a $13.6 million increase in personnel costs (including $3.8 million stock-based compensation) and a $4.5 million increase in sales commissions[145][147] - Research and development expense increased by $7.5 million (28%), mainly due to a $5.6 million increase in personnel costs (including $2.3 million stock-based compensation)[145][148] - General and administrative expense increased by $4.7 million (22%), primarily from a $3.3 million increase in personnel costs (including $1.8 million stock-based compensation) and a $0.8 million increase in intra-entity asset transfer costs[149][154] - Interest expense, net, increased by $3.3 million, primarily due to the Term Loan entered into in July 2021[149] Liquidity and Capital Resources This section analyzes Tenable's liquidity position, capital resources, and cash flow management, including funding sources, principal uses of cash, and future capital requirements - At March 31, 2022, Tenable had $287.5 million in cash and cash equivalents and $238.6 million in short-term investments[150] - Operations are primarily financed through cash provided by operations and customer prepayments (deferred revenue), which totaled $527.5 million at March 31, 2022[151][152] - Principal uses of cash include funding operations, expanding sales/marketing and R&D, infrastructure investments, and acquiring complementary businesses (e.g., Cymptom for $23.0 million in Q1 2022, Bit Discovery for $44.5 million in Q2 2022)[153] - The company expects existing cash and investments to be sufficient for at least the next 12 months but may require additional equity or debt financing for future growth and acquisitions[154][155] - The $375.0 million Term Loan and $50.0 million Revolving Credit Facility (from July 2021) are key components of the capital structure, with the company in compliance with covenants as of March 31, 2022[156][157] Cash Flows This section summarizes Tenable's cash flow activities from operations, investing, and financing for the three months ended March 31, 2022 Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $32,862 | $38,625 | | Net cash (used in) provided by investing activities | $(33,486) | $578 | | Net cash provided by financing activities | $10,528 | $12,058 | | Net increase in cash and cash equivalents and restricted cash | $9,455 | $50,193 | - Net cash from investing activities decreased by $34.1 million, primarily due to the $23.0 million Cymptom acquisition, a $7.4 million increase in net purchases of short-term investments, and a $3.8 million increase in property and equipment purchases[160] - Net cash from financing activities decreased by $1.5 million, mainly due to a $1.4 million decrease in stock option exercise proceeds and a $0.9 million term loan principal payment, partially offset by an $0.8 million increase from the employee stock purchase plan[161] Contractual Obligations This section addresses Tenable's contractual obligations and commitments, referencing details provided in the notes to the consolidated financial statements - No material changes to contractual obligations and commitments were reported from those disclosed in the 10-K, with details on operating lease payments and AWS cloud service commitments referenced in Notes 7 and 9[162] Critical Accounting Policies and Estimates This section confirms that Tenable's financial statements adhere to U.S. GAAP, with no material changes to critical accounting policies or estimates from the 10-K - Financial statements are prepared in accordance with U.S. GAAP, requiring management estimates and assumptions, with no material changes to critical accounting policies and estimates from the 10-K[163][164] Recently Issued Accounting Pronouncements This section refers to Note 1 of the consolidated financial statements for information on recently issued accounting pronouncements, including ASU No. 2020-04 - Information regarding recently issued accounting pronouncements is provided in Note 1 to the consolidated financial statements, specifically mentioning ASU No. 2020-04 - Reference Rate Reform[30][165] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Tenable's exposure to market risks, including interest rate, foreign currency exchange, and inflation risks, and assesses their potential impact on the company's financial position and results of operations - Tenable is exposed to interest rate risk from its cash, cash equivalents, short-term investments, and the variable-rate Term Loan. A one percentage point increase in the Term Loan rate would increase 2022 interest expense by $1.6 million[167][168] - Foreign currency exchange risk primarily affects operating expenses incurred outside the U.S., but its impact has not been material historically, and the company has not engaged in hedging transactions[170] - Inflation has not had a material effect on the business, but significant inflationary pressures on costs could adversely affect financial condition[171] Item 4. Controls and Procedures This section confirms the effectiveness of Tenable's disclosure controls and procedures as of March 31, 2022, and reports no material changes in internal control over financial reporting. It also acknowledges the inherent limitations of internal control systems - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[172][173] - No changes in internal control over financial reporting were identified during the period that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[174] - Management acknowledges that internal controls, no matter how well designed, can only provide reasonable, not absolute, assurance of achieving control objectives due to inherent limitations and resource constraints[175][176] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section states that Tenable is not currently involved in any legal proceedings that would materially adversely affect its business. However, it acknowledges the potential for future litigation, particularly concerning intellectual property, and the associated costs and management distractions - Tenable is not currently a party to any legal proceedings that would have a material adverse effect on its business, results of operations, financial condition, or cash flows[178] - The company may face future claims, including intellectual property infringement, and litigation can have an adverse impact due to defense and settlement costs and diversion of management resources[178] Item 1A. Risk Factors This section details significant risks and uncertainties that could materially and adversely affect Tenable's business, financial condition, and results of operations. These risks span operational, competitive, regulatory, and financial aspects, including market dynamics, technological challenges, legal compliance, and investment-related considerations Selected Risks Affecting Our Business This section highlights key operational and financial risks that could impact Tenable's business performance and financial stability - Key risks include a history of losses, intense competition, inability to sustain revenue growth, challenges in scaling the business, dependence on reliability and accuracy of data/solutions, fluctuating quarterly results, reliance on customer renewals and expansion, dependence on third-party network infrastructure, stringent data privacy obligations, and reliance on channel partners[180] Risks Related to Our Business and Industry This section details specific risks inherent to Tenable's business model and the cybersecurity industry, encompassing competitive pressures, growth sustainability, and operational dependencies - Tenable has a history of net losses ($24.5 million in Q1 2022) and may not achieve or maintain profitability due to a highly competitive and evolving market, and increased costs from investments in growth[182][183] - The cybersecurity market is intensely competitive, requiring continuous innovation to address dynamic threats and compete with larger, more established vendors and new market entrants[184][189] - Sustaining revenue growth (29% YoY in Q1 2022) is uncertain and depends on customer acquisition, expansion, product enhancements, and effective competition[191] - The business relies heavily on customer renewals and expansion of IT assets/IP addresses under subscriptions; any decline would harm results[211][212] - Reliance on third-party network infrastructure (e.g., AWS) poses risks of service interruptions, security breaches, and potential liability[214][215][216] - Compliance with stringent and changing data privacy and security obligations (e.g., CCPA, GDPR) is critical; non-compliance could lead to regulatory actions, fines, and reputational harm[220][221][222][225] - The company relies on a two-tiered channel partner network (distributors and resellers) for a substantial amount of revenue (92% in Q1 2022), with Ingram Micro, Inc. accounting for 37% of revenue[226] - Recent and future acquisitions (e.g., Cymptom, Bit Discovery) involve risks such as integration difficulties, unforeseen liabilities, and diversion of resources[259][260][261] - The company may require additional capital for growth and acquisitions, which might not be available on acceptable terms, and its existing debt (Term Loan) imposes restrictive covenants[262][265] Risks Related to Government Regulation, Data Collection and Intellectual Property This section addresses risks associated with government regulations, data handling, and intellectual property protection, including compliance, potential infringement claims, and open-source software use - Failure to obtain and maintain required security clearances for employees or facility security clearances could adversely affect the ability to secure and perform U.S. government contracts[276] - Protecting proprietary technology and intellectual property (24 issued patents, 17 pending applications, trademarks, trade secrets) is crucial; failure to do so could harm the business and operating results[277][278][279][282] - The company may be subject to costly intellectual property rights claims by third parties, potentially requiring significant damages or limiting the use of certain technologies[283][284][285] - Use of open source software in solutions carries risks, including potential infringement claims or requirements to publicly release proprietary source code if license terms are not complied with[286][287] Risks Related to An Investment in Our Common Stock This section outlines risks specific to investing in Tenable's common stock, including price volatility, potential dilution from future sales, dividend policy, and anti-takeover provisions - The company's stock price may be volatile due to various factors, including operating results, competitor actions, market speculation, and general economic conditions[288][289][291] - Future sales of substantial amounts of common stock by the company or its stockholders could depress the market price and impair the ability to raise capital[293][294] - Tenable does not intend to pay dividends for the foreseeable future, meaning investment returns depend solely on stock price appreciation[295] - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult and limit stockholders' ability to influence management or the Board of Directors[296][297] General Risks This section covers broad risks such as compliance with anti-corruption laws, export controls, tax law uncertainties, limitations on NOLs, internal control effectiveness, and geopolitical tensions - Non-compliance with anti-corruption laws (e.g., FCPA, U.K. Bribery Act) in domestic and international operations can lead to criminal/civil liability and harm business/reputation[301][302] - Governmental export/import controls and economic sanctions could impair the ability to conduct international business and result in liability for non-compliance[303][304][305] - Uncertainties in tax laws and regulations, including potential changes to income and non-income taxes, could materially affect tax obligations and effective tax rate[306][307] - The ability to use net operating losses (NOLs) to offset future taxable income may be limited by Internal Revenue Code provisions (Section 382) or lack of future taxable income[309][310] - Failure to maintain proper and effective internal controls over financial reporting could adversely affect investor confidence and the common stock value[311][313] - The conflict in Ukraine and other geopolitical tensions could negatively impact the global economy and capital markets, potentially affecting customer budgets and purchasing decisions[272][273][275] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms that there were no unregistered sales of equity securities or any use of proceeds to report during the period - No unregistered sales of equity securities occurred during the period[314] - No proceeds from unregistered sales of equity securities were used during the period[315] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and XBRL data files - Exhibits include the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Common Stock Certificate, Certifications of Principal Executive and Financial Officers (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL Taxonomy Extension Documents[317] Signatures This section contains the official signatures of the registrant's authorized officers, specifically the Chairman and Chief Executive Officer and the Chief Financial Officer, certifying the accuracy and completeness of the Quarterly Report on Form 10-Q - The report is signed by Amit Yoran, Chairman and Chief Executive Officer, and Stephen A. Vintz, Chief Financial Officer, on May 5, 2022, certifying compliance with Securities Exchange Act requirements[322]